Companies prey on the tax weary

Attorney general urges care about refund loans

It isn’t a holiday, but April 15 is a date few people forget. It’s Tax Day, and for some, it’s a blessing (those who get refunds) and for others, a curse (those who have to pay).

For many people in Illinois, it can come with an abject lesson in how low unscrupulous companies will go to make a few bucks.

The growth of tax-refund anticipation products has been phenomenal during the past few years, boosted by a fast-food culture that is not used to waiting to get what it wants. Those products allow a person to get money now instead of having to wait for Uncle Sam to send a refund.

But they often have a lot of fine print that should be read carefully and, depending on the company, can contain hidden fees and charges.

Attorney General Lisa Madigan went after one company in 2012, the Memphis-based Mo’ Money, which had branches in Illinois. She sued on the grounds the company was deducting as much as $700 a person in undisclosed fees. The case remains in the courts.

The state’s Consumer Fraud Bureau has been successful in getting regulations on refund-anticipation loans tightened. A new law prohibits unnecessary charges – also called junk fees – on refund loans.

Most federally regulated financial institutions have already abandoned the refund-anticipated products because of new regulations.

There are also limitations in the interest rate businesses can charge in both refund-anticipation loans and refund-anticipation checks, the newest incarnation of what’s on the market.

In refund-anticipation checks, a person pays a fee to receive a check into a temporary bank account. In a lot of instances, it takes just as long to receive as it takes for a refund to be received under direct deposit.

In the meantime, consumers end up paying what in extreme cases can amount to a 273 percent annual percentage rate or higher.

Yet the products remain hugely popular. In 2010, about 5 million consumers used some sort of refund-anticipation product. In 2011, that jumped to 18 million, according to the National Consumer Law Center. Clearly, some see an advantage to this kind of arrangement.

The important thing is to be a smart consumer and know exactly what is being offered. If something seems wrong or too good to be true, walk away.